The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. We caution readers
regarding certain forward looking statements in the following discussion and
elsewhere in this report and in any other statement made by, or on our behalf,
whether or not in future filings with the
"Ionix", "the Company," "we,"or "our"are to
And "the Group,"or "our Group," are to the Company, and, where the context requires ,its consolidated subsidiaries, including its variable interest entities and their subsidiaries, from time to time;
"variable interest entities,or"VIE" are to
The investors and the potential investors are advised to exercise causation when
trading in the shares of
The Company is not a Chinese operating company but a
See "Risks associated with the VIE structure" in the footnotes section entitled "NOTE 3 - VARIABLE INTEREST ENTITY of this 10Q for a discussion of certain risk factors that should be considered by the potential investors or the investors of the Company.
Legal And Operational Risks Associated with being Based In
Risks Related to new laws,or regulations of PRC
The constant developments in the political and economic policies of the PRC government which may materially and adversely affect the Group's business, financial condition and results of operations
All of the Group's operations are conducted in the PRC, and are governed by PRC laws, rules and regulations.
Our PRC subsidiaries are subject to laws, rules and regulations applicable to
foreign investment in
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to the Company and its shareholders.
The PRC legal system is based on written statutes .Its court decisions have limited precedential value. The PRC legal system is evolving rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.
From time to time, the Group may have to resort to administrative and court proceedings to enforce the legal rights of the Group. However, since PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding than in more developed legal systems. Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely manner, or at all, but which may have retroactive effect. As a result, the Group may not always be aware of any potential violation of these policies and rules. Such unpredictability towards the Group's contractual, property (including intellectual property) and procedural rights could adversely affect the Group 's business and impede its ability to continue the operations.
34
The relevant new laws,or regulations of PRC issued recently are listed as below:
a.The Opinions on Intensifying Crack Down on Illegal Securities Activities
issued on
• tightening oversight of data security, crossborder data flow and administration of classified information, as well as amendments to relevant regulation to specify responsibilities of overseas listed Chinese companies with respect to data security and information security;
• enhanced oversight of overseas listed companies as well as overseas equity fundraising and listing by Chinese companies; and
• extraterritorial application of
These laws and regulations can be complex and stringent, and are subject to change and uncertain interpretation, which may affect the Group's business.
b. On
c. In
d. In
The Group (including the VIE whose business are not subject to foreign investment restrictions ) neither involved any IT, Internet products or services , nor had concerns on the monopolistic behaviors and the unauthorized use, loss or leak of user data.
Hence neither the amended PRC Anti-monopoly Law nor the Data Security Law have
any impact on the Group's ability to conduct its business, accept foreign
investments, or list on an
e.In light of recent events indicating greater oversight by the
Issues on foreign exchange
35
PRC regulations relating to investments in offshore companies by PRC residents may limit the Company's ability to inject capital in the PRC subsidiaries or limit our PRC subsidiaries' ability to increase their registered capital or distribute profits. These risks may have a material adverse effect on the Group's business, financial condition and results of operations.
The Group primarily generate the cash flow directly through the VIE and subsidiaries. The Group have not relied on VIE agreements to transfer cash flow from the VIE to the whole-owned subsidiaries. The Company funded the strategic acquisitions and investments primarily from cash generated from the Group's operations and through debt and equity financing.
We expect to fund additional investments through cash generated from our operations and through debt and equity financing when opportunities arise in the future.
Restrictions on currency exchange or outbound capital flows may limit the Group's ability to utilize the PRC revenue effectively.
All of the Group's revenue is denominated in Renminbi. The Renminbi is currently convertible under the "current account," which includes dividends, trade and service-related foreign exchange transactions, but requires approval from or registration with appropriate government authorities or designated banks under the "capital account," which includes foreign direct investment and loans, including loans the Group may secure from the PRC subsidiaries or variable interest entities. Currently, the PRC subsidiaries, that are foreign invested enterprises, may purchase foreign currency for settlement of "current account transactions," including payment of dividends to the Company, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate the Group's ability to purchase foreign currencies in the future for current account transactions.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by investment in PRC entities by offshore holding companies, it is possible that the Company is not able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by the Company to the PRC subsidiary or with respect to future capital contributions by the Company to the PRC subsidiary. If we fail to complete such registrations or obtain such approvals, the Group's ability to use the proceeds received from the equity offering and notes offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect the Group's liquidity and ability to fund and expand business.
Governmental control of currency conversion may limit the Group's ability to utilize the revenues effectively and affect the value of the company shareholders' investment.
The PRC government imposes controls on the convertibility of the Renminbi into
foreign currencies and, in certain cases, the remittance of currency out of
Under existing PRC foreign exchange regulations, payments of current account
items, including profit distributions, interest payments and trade and
service-related foreign exchange transactions, can be made in foreign currencies
without prior approval of SAFE by complying with certain procedural
requirements. Specifically, under the existing exchange restrictions, without
prior approval of SAFE, cash generated from the operations of PRC subsidiaries
in
In light of the flood of capital outflows of
More restrictions and substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account.
The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents the Group from obtaining sufficient foreign currencies to satisfy Group's foreign currency demands, the Company may not be able to pay dividends in foreign currencies to the shareholders of the Company.
Within the Group structure 36
During the term of the equity pledge agreements, the Company has the right to receive all of the dividends and profits distributed from the VIE on the pledged equity interests. The pledge will remain binding until the VIE and the Shareholders of the VIE discharge all their obligations under the contractual arrangements. The Company believes that the each of the contractual arrangements (including the equity pledge agreement ) constitutes valid and legally binding obligations of each party to such contractual arrangements under PRC laws.
However, the interpretation and implementation of the laws and regulations in the PRC and their application on the legality, binding effect and enforceability of contracts are subject to the discretion of competent PRC authorities, and therefore there is no assurance that relevant PRC authorities will take the same position as the Company herein in respect of the legality, binding effect and enforceability of each of the contractual arrangements. Meanwhile, since the PRC legal system continues to evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to the Company to enforce the contractual arrangements should the VIE or the shareholders of the VIE fail to perform their obligations under those arrangements.
The Company currently intend to retain most, if not all, of the Group's available funds and any future earnings to fund the development and growth of the Group's business. As a result, the Company does not expect to pay any cash dividends in the foreseeable future.
Under the exclusive technology support services agreement between the Company and the VIE, the Company does have the exclusive right through the relevant subsidiaries to provide the VIE the consulting and services related to, among other things, research and development, system operation, advertising, internal training and technical support. These VIE shall pay the Company an annual service fee, which are subject to the adjustment by the Company at its sole discretion. This agreement will remain effective with no express expiration unless as earlier terminated in writing by the Company (or through the relevant subsidiary if applicable) and the VIE.
The Group primarily generate the cash flow directly through our VIE and subsidiaries, and does not rely on the VIE agreements to transfer cash flow from the VIE to the whole-owned subsidiaries or the Company.The Group funded our strategic acquisitions and investments primarily from cash generated from the operations and through debt and equity financing.
And the Group does expect to fund additional investments through cash generated from the operations and through debt and equity financing when opportunities arise in the future. And none of any transfers, dividends, or distributions have been made to date.
Results of Operation For the Six Months Ended
The calendar year of 2021 and 2020 were challenging and disruptive for the world, with the COVID-19 pandemic adding to the headwind of an already challenging global economy. Almost no industry was unaffected by the pandemic. The unprecedentedly adverse global operating environment had a major impact on the Group's business.
Nevertheless, the Group survived and thrived against all odds. With the gradual stabilization of the domestic photoelectric display industry, the Group especially the VIE would anticipate a steady increase in the sales.
Based on the Group's well-established reputation in the market, management of the Company believes that the demand for the Group products would increase during the economic rebounding and the overall financial and business positions of the Company would remain sound, and the Company is well positioned to take advantage of any upturn in the market.
Considering that such effects of COVID-19 is temporary and will not have major impact on the long-term performance , the Group believes that the increase in turnover of the VIE as caused by the gradual recovery of the economy of PRC , would maintain in the future. As such, the Group remains cautiously optimistic about its sustainable development.
Given the dynamic nature of the COVID-19 outbreak, it is not practicable to provide a reasonable estimate of its impacts on the Group's financial position, cash flows and operating results at the present.
Revenues
During the three months and six months ended
During the three months ended
37
During the six months ended
Among the significant increase of
In addition, the increases in total revenues for the three and six months ended
The increase in total revenues during the three and six months ended
increased operating revenue of the Group.
Cost of Revenue
Cost of revenues included the cost of raw materials, labor, depreciation, overhead and finished products purchased.
During the three months ended
During the six months ended
Among the significant increase of
The increase in cost of revenues can be directly attributed to the increase of revenues.
Gross Profit
During the three months ended
The gross profit decreased by 1% from the three months ended
Our gross profit margin was at 10% during the three months ended
During the six months ended
The gross profit increased by 12% from the six months ended
Our gross profit margin was at 9% during the six months ended
Selling, General and Administrative Expenses
Our selling, general and administrative expenses are mainly comprised of payroll expenses, transportation, office expense, professional fees, freight and shipping costs, rent, and other miscellaneous expenses.
During the three months ended
38
During the six months ended
Research and Development Expenses
Our research and development expenses are mainly comprised of payroll expenses of research staff, costs of materials used for research and other miscellaneous expenses.
During the three months ended
During the six months ended
Other Incomes (Expenses)
Other expenses consisted of interest expense, net of interest income. Other incomes consisted primarily of subsidy income and gain on extinguishment of debt, net of loss on extinguishment of debt.
During the three months ended
During the six months ended
The subsidy income was government subsidies received by
The change in fair value of derivative liability can be attributed to the fact
that there were convertible notes during the three and six months ended
The loss on extinguishment of debt of
The gain on extinguishment of debt of
The gain on extinguishment of debt of
Net Income (Loss)
During the three months ended
During the six months ended
39
Liquidity and Capital Resources
Cash Flow from Operating Activities
During the six months ended
Cash Flow from Investing Activities
During the six months ended
Cash Flow from Financing Activities
During the six months ended
of
As of
Our total current liabilities as of
Going Concern
The accompanying consolidated financial statements have been prepared assuming
that the Group will continue as a going concern. The Group had an accumulated
deficit of
The Group plans to rely on the proceeds from loans from both unrelated and related parties to provide the resources necessary to fund the development of the business plan and operations. The Group is also pursuing other revenue streams which could include strategic acquisitions or possible joint ventures of other business segments. However, no assurance can be given that the Group will be successful in raising additional capital.
Future Financings
The Group considers taking on any long-term or short-term debt from financial institutions in the immediate future. Besides for the bank funding, the Group are dependent upon the directors and the major shareholders of the Company to provide continued funding and capital resources. If continued funding and capital resources are unavailable at reasonable terms, the Group may not be able to implement our plan of operations. The financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Group be unable to continue in operation.
Off-Balance Sheet Arrangements
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The Group does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Group's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies
The critical accounting policies of the Group are disclosed Note 2 to the consolidated financial statements.
Recently Issued Accounting Pronouncements
There were no recent accounting pronouncements that have or will have a material effect on the Group's financial position or results of operations.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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